China should learn from Japan's lost decade: former official

(This March 12 story has been refiled to correct last year of Zhou’s governorship in 6th paragraph)

FILE PHOTO: Zhou Xiaochuan, President of China Society for Finance and Banking and former governor of the People's Bank of China (PBOC) attends an interview with Reuters in Geneva, Switzerland, September 19, 2018. REUTERS/Denis Balibouse

By Tom Arnold

LONDON (Reuters) - China needs to learn lessons from Japan’s lost decade to ensure the world’s second-largest economy does not suffer similar problems, former central bank governor Zhou Xiaochuan said on Tuesday.

Debt levels in China are too high, although the Chinese government is taking steps to try to de-leverage the economy, Zhou said in a speech at Chatham House in London.

“Japan had very fast development and later then a so-called lost decade,” he said. “The Chinese economy may have a similar over-leveraged problem, and we need to absorb the knowledge and lessons from what happened.”

The lost decade refers to the period of economic stagnation in Japan that began in the 1990s.

China’s gross domestic product last year expanded at its slowest pace since 1990, while corporate bond defaults hit a record high and banks’ non-performing loan ratio notched a 10-year high.

Zhou, who was the central bank governor from 2002 to 2018, making him the longest serving in that post, said he hoped high levels of household savings could be funneled into supporting the development of the equity market, although China’s gross savings rate would likely slip from around 45 percent of GDP to 40 percent or lower in the future.

China would continue its financial sector reform and further open its markets to foreign investors, enabled in part by the increasing internationalization of its currency, the yuan, he said.

“After so many years China is much more confident to have further reform and open-door policy,” Zhou said. But he acknowledged the pace of some reforms had been too slow and further overhauls were needed to help develop capital markets and revamp the pension system.

Expressing hope that China’s trade war with the United States would ease, he said: “We stand for free trade and investment and multilateralism.”

The governments of the world’s two largest economies have been locked in a tariff battle as Washington presses Beijing to address longstanding concerns over Chinese practices around technology transfers, market access and intellectual property rights.